Over 400 years ago, William Shakespeare offered the fateful advice: “Neither a borrower nor a lender be.” While the bard cautioned against both borrowing and lending, it seems that much of the onus today in Ireland lies with the borrower. The banks have done all they can, they say, and some borrowers have just stopped paying their mortgages.
So are we being too lenient on those who don’t repay their mortgages? The Minister for Finance, Michael Noonan TD, addressed a Fianna Fáil Private Members Motion on mortgage arrears last week.
“We cannot have a situation where so many families are living under the stress of mortgage arrears, are excluded from participating in the economy, and from living their lives because they cannot pay their mortgage,” said Noonan.
The Minister added that there is no doubt that families across the country are experiencing real and genuine difficulties in meeting their monthly mortgage repayments. He said that the Government is fully aware of the impact that this is having on these families and their lives, and that the government has, over the past two and a half years, taken a number of “significant steps” to address these. The Minister believes that the steps taken are “innovative and incorporate stronger protections for the family home than in other countries.”
The Minister placed emphasis on the word ‘genuine’ when he spoke of those in mortgage difficulty. “The framework is now in place for banks to reach solutions with their customers who are in arrears, targets are in place, and we expect the banks to deliver,” said Minister Noonan.
Buy to let
In recent months the spotlight has been moving from struggling homeowners to strategic defaulters, especially those with properties that are so-called ‘Buy-to-Lets’. In some cases borrowers are receiving rent from these properties and are getting tax relief on their mortgage, but they are choosing not to repay their mortgages.
According to Ross Maguire, Senior Counsel and co-founder of mortgage advocacy group New Beginning, many buy-to-let properties are part of a package deal with a family home, and still affect the well-being of a family unit. “We have a simple choice to make,” says Maguire. “Are we on the side of the family or on the side of international finance?”
Maguire contends that forcing homeowners to repay more than one third of their post-tax income is a disastrous policy for the economy, as such families then have little or no disposable income with which to support Irish business. New Beginning maintains that equitable solutions could be found that would mean banks would receive the bulk of loans outstanding, while allowing families to maintain a reasonable standard of living without fear of losing their home.
The Kean Report
The recommendations of the Kean Report are, according to Minister Noonan, the “blueprint for Government action to address this problem.” The minister added that the “great majority of its recommendations have already been acted upon and are being implemented.”
Noonan reiterated the findings of the Keane Report: “The Government should focus its attention on providing appropriate supports to people who have genuine difficulty in repaying their mortgage, but … mortgage holders who have the capacity to meet their financial commitments should be encouraged, supported and be expected to meet those obligations.”
Repossessions
“I would like to reaffirm that the strong view of the Government is that, in respect of co-operating borrowers under the MARP process (Mortgage Arrears Resolution Process), repossession of a person’s home should only be considered as a very last resort,” said Minister Noonan.
Some in the industry, however, feel that there are not enough repossessions being carried out. In fact, the process of managing arrears has become a major burden for most banks. Some utilise IT systems that need to be fundamentally overhauled just to deal with the situation: many bank systems were never designed to hold arrears information for longer than a six month period because these systems were designed in the US, which only allows for arrears of up to six months as homes are repossessed (foreclosed) before that period. In general, American mortgage companies start foreclosure processes about 3-6 months after the first missed mortgage payment.
Keeping going
While foreclosure systems in the US mean the process is sorted out much more quickly, many Irish families are suffering unbearable financial strain and uncertainty over protracted time periods. According to Shane Martin, a psychologist who has led debt-survival seminars for New Beginning, “resilience is the ability to adapt to the challenges of life, it’s about bouncing back rather than falling apart.
“I want to emphasise that it’s about having the best possible life in the circumstances that you find yourself in,” says Martin. It may not be Shakespeare, but it sounds like good advice.
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